FDIC Law, Regulations, Related Acts

4000 - Advisory Opinions

Dual Service as Director of Bank and Bank Holding Company under
FDIC's Management Official Interlocks Regulation

FDIC-90-79

December 24, 1990

Pamela E.F. LeCren, Counsel

This letter is in response to your recent request for a
determination of whether the appointment of Mr. [X] as director of
[Bank A] and [*** Holding Company] would create a prohibited
management official interlock in violation of the FDIC's applicable
regulation, 12 C.F.R. §348. I conclude that Mr. [X]'s
appointment does not violate the agency's management interlock
regulation.

Facts

[*** Holding Company] is a bank holding company, charted in
Massachusetts, which wholly owns [Bank A], a financial institution
also charted in Massachusetts. [Bank B] is a Massachusetts-chartered
savings bank, which is not affiliated with [Bank A] or [*** Holding
Company].

[Mr. Y] is the director of [Bank B] and the Chairman of the
Board of [*** Company], which is the general partner of [***
Partnership]. [*** Partnership] is an organization which owns 48,750
shares, or 3.3% of the stock of [Bank B], and 46,500 shares, or
2.5% of the stock of [Bank A]. [Mr. Z] owns 2.5% of [Bank A]'s
stock and 4.8% of [Bank B]'s stock.

[Mr. X] is an officer of *** Corporation, of Boston,
Massachusetts. He does not work for and is not related to Mr. [Z] or
Mr. [Y]. He owns 3,000 shares of [Bank A]'s stock.

On September 7, 1990, Mr. [Y], Mr. [Z] and Mr. [X] entered
into a "standstill agreement" with [Bank A] and [*** Holding
Company]. Under the agreement, Mr. [Y] and [Z] agreed to support
the bank's proposal to reorganize and become a wholly owned subsidiary
of [*** Holding Company], in return for which the Bank's existing
board of directors would cause [Mr. X] to be appointed a director.
His term would expire at the bank's 1991 shareholder's meeting at which
time the board will nominate him for re-election provided that there is
no "cause" to remove him as that term is defined in the bank's
charter. Mr. [Y], [Z] and [X] also agreed not to acquire voting
securities in excess of 9.9% of the bank over the following three
years; not to participate in any effort with others to acquire control
of the bank; and to vote their stock in accordance with the
recommendations of the board. The agreement recognized that while Mr.
[Y] and Mr. [Z]
favored Mr. [X]'s appointment, Mr.
[X] was to act in an entirely independent basis in his role as the
institution's director. To buffer this independent role, the agreement
provides that Mr. [X] is not to provide any information to others
regarding [Bank A] and [*** Holding Company] that is not otherwise
available to the general public. The agreement further requires as a
condition precedent to Mr. [X]'s appointment as a director that the
FDIC determine in writing that the appointment would not violate the
Interlocks Act.

Discussion

The crux of your inquiry focuses on whether Mr. [X] would be
considered a "representative or nominee" under FDIC's
regulations. Section 348.2(k) of the FDIC's regulations defines
"representative or nominee" as follows:

Representative or nominee means a person who serves as a
management official and has an express or implied obligation to act on
behalf of another person with respect to management responsibilities.
Whether a person is a "representative or nominee" depends upon
the facts in individual cases. The appropriate Federal supervisory
agency or agencies will determine, after giving the affected persons
the opportunity to respond whether a person is a "representative or
nominee." Certain relationships (including family, employment, and
agency relationships), or the ability and exercise of ability by a
shareholder of a depository organization to elect a director, may be
evidence of such an express or implied obligation.

After carefully considering the facts as set forth above, we have
concluded that Mr. [X] would not be considered a "representative
or nominee" for the purposes of section 348.2(k). First, even if we
were to attribute the shares owned by Mr. [Z] to Mr. [Y], a 5%
ownership interest in [Bank A] is not sufficient to warrant finding
representative or nominee status.

Second, Mr. [X], Mr. [Y] and Mr. [Z] have shared no prior
relationships which would indicate a representative or nominee
relationship. There is no family relationship between the three men.
Additionally, there is no previous standing business relationship
between them. Neither Mr. [Y] nor Mr. [Z] has ever employed Mr.
[X].

Third, Mr. [Y] and Mr. [X] as well as Mr. [Z] have made an
affirmative representation that Mr. [X] is not to act as a
representative or nominee of Mr. [Y], formally indicating Mr. [X]'s
intent to exercise independent judgement and faithfully discharge his
duty as a director of [Bank A] and [*** Holding Company].

Finally, Mr. [X] is barred under the agreement from passing on
information to Mr. [Y] and Mr. [Z] that is not otherwise publicly
available. But for such a provision, the FDIC would be concerned about
a flow of information between [Bank B] and [Bank A] which could
prevent an atmosphere of open competition between the two institutions.
Nevertheless, the agreement seems to preclude such a problem, serving
to further indicate the lack of a representative or nominee
relationship between Mr. [X] and others.

Conclusion

The appointment of Mr. [X] will not result in a violation of Part
348 as he will not be considered a representative or nominee of Mr.
[Y] or Mr. [Z] within the meaning of section 348 of the FDIC's
regulations. This opinion is based, however, upon facts known to this
agency at the present time. Should new information become available or
the facts change, the substance of this opinion may change.